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Option prices and model-free measurement of implied herd behavior in stock markets

Author

Listed:
  • Daniël Linders

    (KU Leuven, Faculty of Business and Economics, Department of Accountancy Finance and Insurance (AFI), Naamsestraat 69, 3000 Leuven, Belgium)

  • Jan Dhaene

    (KU Leuven, Faculty of Business and Economics, Department of Accountancy Finance and Insurance (AFI), Naamsestraat 69, 3000 Leuven, Belgium)

  • Wim Schoutens

    (KU Leuven, Faculty of Sciences, Department of Mathematics, Celstijnenlaan 200B, 3001 Heverlee, Belgium)

Abstract

In this paper, we introduce two classes of indices which can be used to measure the market perception concerning the degree of dependency that exists between a set of random variables, representing different stock prices at a fixed future date. The construction of these measures is based on the theory of comonotonicity. Both types of herd behavior indices are model-free and risk-neutral, derived from available option data. Depending on its particular definition, each index represents a particular aspect of the market sentiment concerning future co-movement of the underlying stock prices.

Suggested Citation

  • Daniël Linders & Jan Dhaene & Wim Schoutens, 2015. "Option prices and model-free measurement of implied herd behavior in stock markets," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 1-35.
    • Handle: RePEc:wsi:ijfexx:v:02:y:2015:i:02:n:s2424786315500127
    DOI: 10.1142/S2424786315500127
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    Cited by:

    1. Lee Woojoo & Ahn Jae Youn, 2017. "Measuring herd behavior: properties and pitfalls," Dependence Modeling, De Gruyter, vol. 5(1), pages 316-329, December.

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    More about this item

    Keywords

    Comonotonicity; herd behavior; HIX; index options; market fear; model-free measures; VIX;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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